Can we fix excessive volatility?

[only]

I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply.

Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in.

I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example:

John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system.

And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary

Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver?

Would be interesting to see what you guys think

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[Zoznoz]

You raise some very good points about the volatile nature of virtual currencies which we have seen recently. I believe that it is more a supply and demand thing. Bit coins was in the news and hyped up during the early part of this year which probably caused a huge amount of interest in virtual currencies. However, if one day merchants are able to devise a system to provide bit coins instantly for credit cards or voucher codes etc therefore making bit coins more accessible then we could see a fall in the BTC/USD because of the supply to the greater market.

[only]

Does anyone else have more relevant thoughts?

[AliceWonder]

Feds would likely shut it down for similar reasons as to why they shut down Liberty Coin.
Saying they are equivalent to US dollar is dangerous.

Whatever group is behind it in charge of the infinite supply releasing and removing currency as necessary to keep it at a dollar would probably end up in jail.

But I'm no law expert. It just sounds like something that would legally be dangerous to try.

[only]

Feds would likely shut it down for similar reasons as to why they shut down Liberty Coin.
Saying they are equivalent to US dollar is dangerous.

Whatever group is behind it in charge of the infinite supply releasing and removing currency as necessary to keep it at a dollar would probably end up in jail.

But I'm no law expert. It just sounds like something that would legally be dangerous to try.

Well, it is sort of hard to "shut down" a p2p crypto-currency, isn't it?

[SaintFlow]

My bad, and my thought was that bitcoin was a exercise in getting away from governing in general.
To me the exchanges just exist so that nonminers can have some.

That you guys value yourself by looking at the outside is the problem and there is no solution.

[only]

My bad, and my thought was that bitcoin was a exercise in getting away from governing in general.
To me the exchanges just exist so that nonminers can have some.

That you guys value yourself by looking at the outside is the problem and there is no solution.

How is my idea of a Dollar pegged crypto-currency hurting your utopia? It would be just a handy proxy for transacting and a quick way to escape the volatility and near-term losses (without having funds transfered all the way back to fiat), that's all.

[TiagoTiago]

The thing is, where would you get the exchange rate from? And what would prevent people from charging more than 1 USD for 1 virtual dollar when there isn't enough supply to cover the demand?

[only]

The thing is, where would you get the exchange rate from? And what would prevent people from charging more than 1 USD for 1 virtual dollar when there isn't enough supply to cover the demand?

Good point. Perhaps compute an average from the main BTC exchanges? The created arbitrage opportunity should also make their quotes equal, theoretically.

Regarding the supply, it would be unlimited.

[SaintFlow]

nothing can touch utopia

[only]

Pegcoin would be awesome, but I don't see how you could make it work.

Why it wouldn't work in your opinion? The deficit of BTC's for withdrawals in case the exchange rate drops?

[johnyj]

Then you are in fact counterfeiting USD in a P2P network

[worldinacoin]

Yes we can, lets trade with Bitcoin as much as possible, in this way the bigger the Bitcoin market, the less the volatility.

[MinermanNC]

Interesting thought, basically your finding an equal value in digital form for the dollar, for the purpose of transacting only? as if it were a dollar. So where would that leave the investment side of bitcoin and the specualting that can drive a profit (or loss) for bitcoin holders, or miners for that point..lol, and i think your suggesting using the BTC as an avenue or catalyst to make it happen. ( to purchase the equal coin/dollar) for sending money or purchases,,,sorta like is done now with a btc wallet or even a paypal of sorts. But i don't see how this would stabilize bitcoin? at least the way it exist now...or perhaps your saying create a new digital currency call it Dollar Coin DC that is just created by a new software etc...I dont think it could sustain the security and strength of encryption that btc does through the conformation cycles without  mass users... and of course some sort of blockchain. ok,,,I don't want to over think it ... but will sleep on it! But I do see your concept..verdy intor'esting" just passing through keep thinking!

[Komodorpudel]

I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply.

Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in.

I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example:

John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system.

And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary

Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver?

Would be interesting to see what you guys think

Probably the easiest way to stop exessive volatility would be a kind of a bitcoin centralbank:

For example: You bring a bitcoin stability asset at bitfunder and collect bitcoins at a voluntary basis(everyone who gives the bitcoin stability fund coins gets the coins only back when price is long term stable and only that amount thats left).
When you have raised 100.000 BTC bring them to gox and cash out the half.
If price loses more than 5% in a single day with out any reason the centralbank would set up a buy wall. If price raises more than 5% the Central Bank would set up a sell wall.

Biggest Problem would be that no one wants to give away their coins for free

[xxjs]

I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply.

Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in.

I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example:

John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system.

And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary

Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver?

Would be interesting to see what you guys think

This is an extension of the dollar money system, just like a gift card system. It has to be centralized. You can do it. Thousands of companies already did.

[Pumpkin]

Sure we can fix volatility.

Become a market maker: help bitcoin and earn money for yourself.

https://bitcointalk.org/index.php?topic=187530.20

Sell high, buy low. PROFIT 

[only]

This is an extension of the dollar money system, just like a gift card system. It has to be centralized. You can do it. Thousands of companies already did.

No, it doesn't have to be centralized. It can be a separate crypto-currency, just pegged 1:1 to the dollar by the protocol.

Sure we can fix volatility.

Become a market maker: help bitcoin and earn money for yourself.

https://bitcointalk.org/index.php?topic=187530.20

Sell high, buy low. PROFIT  

I'm helping Bitcoin with buying and holding it.

[TiagoTiago]

The thing is, where would you get the exchange rate from? And what would prevent people from charging more than 1 USD for 1 virtual dollar when there isn't enough supply to cover the demand?

Good point. Perhaps compute an average from the main BTC exchanges? The created arbitrage opportunity should also make their quotes equal, theoretically.

Regarding the supply, it would be unlimited.

What do you mean "created arbitrage opportunity"? People can already buy Bitcoins on cheaper exchanges and sell where they are higher priced...


And how would the supply be unlimited if not everyone is selling?

[marcus_of_augustus]

If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it ....

Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ...

... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends.

Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options).

The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders.

NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control.